Rakesh Jhunjhunwala backed Nazara Technologies: A diversified play on online gaming market II Explained

IIFL Securities says that Nazara Technologies is the leading diversified gaming and sports media platform with presence in India and across developed global markets such as Africa and North America. Its offerings include interactive gaming, eSports and gamified early learning. Nazara expects to benefit from the underpenetrated Indian gaming and global gamified early learning markets which are expected to grow at 31.7% and 41.8% CAGR over 2020-23, respectively. Nazara’s diversified assets, strong relationships, in-house content, and technology stack are creating the network effect and economies of scale for it to continue its global expansion and increase monetization. 

Rakesh Jhunjhunwala, known as the Big Bull of the market is one of the ace investors who is confident about the growth of this company. He himself has invested in this company and believes that the future of Nazara Technologies will be extremely Bright, Rakesh Jhunjhunwala owns Delta Corp also in gaming space.

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India gaming and e-sports markets are much smaller than US/China:

Global gaming market size is estimated to be at US $158 bn in 2020. India gaming market is at US $1.6 bn compared to US $42.6/39 bn for China/US. It is expected to grow at 31.7% CAGR over 2020-23 due to the growth of digital infrastructure and significant rise in quality and engaging of gaming content. Key drivers are a large population of Gen Z and millennials, proliferation of cheap smart phones, high-speed internet and reduction in data prices.

First mover and strong relationships are strengths:

Nazara’s competitive advantage comes from its capabilities in in-house content creation, game engine development and proprietary technology stack development, and relationships with telecom operators, app stores, global gaming publishers and platforms in the gaming ecosystem. Their content is developed in India for the global audience, allowing them to achieve scale. They are well-positioned against single-market local competitors, given their presence in multiple markets and insight into consumer needs.

Three vectors of growth:

Nazara aims to scale up in the gaming market by:

1) building their leadership position in e-sports and simulation games
2) leveraging the existing distribution network for global expansion in early learning and freemium businesses
3) enhancing existing offerings and technology stack to increase monetization and create economies of scale and network effect

Key risks:

Technology disruptions, regulatory changes, losing partners